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‘First home buyer schemes putting buyers in excessive debt’

By Bianca Dabu
25 June 2021 | 1 minute read
First home buyer schemes putting buyers in excessive debt

While the government touts its efforts to boost home ownership, one real estate network warns current first home buyer schemes could be a catch-22.

The government has substantially increased property price caps under several of its schemes aimed to help first home buyers into the market, but the PRD Real Estate Group has now argued that participants may be swapping early and/or easier access to home ownership with a debt level they may not be ready to take on.

According to Minister for Housing Michael Sukkar, new price caps for the First Home Loan Deposit Scheme (FHLDS) and the Family Home Guarantee (FHG) acknowledge the challenges of buying a new home or re-entering the housing market.

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And while the government’s intention might be good, PRD’s chief economist, Dr Diaswati Mardiasmo, warned of possible long-term challenges for current buyers.

With the FHLDS foreseeing a slim 5 per cent deposit and the FHG an even slimmer 2 per cent, first home buyers and single parents are essentially being asked to service a higher level of mortgage debt, Dr Mardiasmo explained.

For instance, a $600,000 Gold Coast property with a 2 per cent deposit at just $12,000, and a first home owner grant of $15,000, will still accrue $573,000 in mortgage debt, excluding other fees.

Similarly, under the FHG, a $650,000 home in Brisbane with a $32,500 deposit and a $15,000 grant yields $602,500 in mortgage debt.

Additionally, Dr Mardiasmo said, the new price caps open up a higher probability for certain price bands to inflate, lifting prices on what was once thought of as “affordable”.

He said: “This potentially prices out the next generation of first home buyers and single parents, creating a multiplier effect of reliance on government incentives.

“It seems that the current government schemes are a catch-22, swapping early and/or easier access to home ownership with a debt level that the target demographic may not be ready to take on.”

Looking ahead, Dr Mardiasmo urged the government to closely review current issues in the housing market in order to implement the right policies.

She recommended re-establishing balance by implementing schemes that will add to the supply of housing stock.

“These government schemes add to the demand, and thus, must be balanced with schemes that will at least create the same amount of supply,” she highlighted.

Warning of the impending return of migrants, the chief economist judged that “at present our property market is sheltered from international demand”.

“Once again, policy — or more correctly, the right policy — really matters,” she said.

The issue of housing supply has become a hot topic countrywide. Most recently, the Real Estate Institute of Australia addressed the apparent crisis, with its president, Adrian Kelly, calling on the state and federal government to tackle a housing supply plan with “the same spirit, determination and funding we have used to fight COVID-19”.

‘First home buyer schemes putting buyers in excessive debt’
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